Valuation of companies
Akram Taftiyan; Majid Sarayani
Abstract
1- INTRODUCTION
An indicator of investors' trading behavior that affects asset prices is investor sentiment. Investor sentiment is known as a degree of investor's optimistic mood in financial markets. Company-specific investor sentiments have a significant impact on the risk of a stock price ...
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1- INTRODUCTION
An indicator of investors' trading behavior that affects asset prices is investor sentiment. Investor sentiment is known as a degree of investor's optimistic mood in financial markets. Company-specific investor sentiments have a significant impact on the risk of a stock price fall. There are two types of traders, simple noise traders and rational arbitrageurs (informed traders) in the market. When noise traders have high risk sentiment and are very optimistic about a stock, they can easily drive its price to a high level. At this point, arbitrageurs should sell the stock short. However, they fear that in the near future noise traders will become even more bullish and push the price even higher, limiting their prime arbitrage position. Under these conditions, arbitrage does not eliminate the effects of noise, because noise creates risk by itself. Stronger investor sentiments lead to the risk of a particular company's stock price falling, and the economic significance of this effect is not insignificant. Stronger investor sentiment leads to more active margin investments in stocks, leading to higher stock price risk. Therefore, the impact of investor sentiment on stock price downside risk is more pronounced for stocks eligible for margin trading. Hence, this research seeks to answer the question of whether the moderating role of the firm's growth opportunities and profitability has an effect on the value relationship of the risk perception of annual reports?
2- THEORETICAL FRAMEWORK
The basic premise of using investors' risk sentiments to predict stock prices, stock market returns, and liquidity is the synergy between stock prices and investors' risk sentiments. However, this synergistic relationship has received less attention in the literature. When the stock price increases, the investor's risk sentiment increases, and when the stock price decreases, the investor's risk sentiment decreases. Therrfore, this synergy may reverse or even disappear over a certain period of time. Through a segmented measurement of the synergism between stock price and investor sentiment over the course of a day, we can also find that investor risk sentiment on social media is forward-looking. This provides theoretical support for the use of investor risk sentiment in stock price prediction. External anxiety can significantly affect the synergy between stock prices and investor risk sentiment, but this effect can increase positive or negative synergy. The existence of growth opportunities increases the performance of companies and shareholder wealth, which leads to participation in job creation and economic development, increasing the value of companies and the demand for high-quality innovation, and the improvement in the global market increases opportunities and competition, which also forces companies to invest and undertake riskier projects to maximize shareholder wealth. If investor risk sentiment does indeed drive asset prices, then analysts' recognition and treatment of risk sentiment may affect the relative profitability of their stock recommendations. For example, an analyst may believe that a particular stock is overvalued based on his private estimate of the company's intrinsic value. However, the analyst may hesitate to issue a sell recommendation if he believes that investor risk sentiment will continue to put upward pressure on asset prices in the short term. Furthermore, if the analyst believes that investors will become even more bullish in the near future, he may actually issue a buy recommendation. If the analyst (1) correctly anticipates an upward (downward) shift in investor sentiment that ultimately causes an increase (decrease) in asset prices and (2) issues a more favorable (unfavorable) recommendation in response, then the analyst's recommendation may be more profitable than his peers.
3- METHODOLOGY
The current research is based on the classification based on the goal, use, and in terms of classification, it was done using the descriptive-correlation method and using the post-event approach. To collect research data and information by document mining method, field method and databases of Tehran Stock Exchange, comprehensive information system of publishers (Kedal) and modern Rahvard software were used. Finally, the data has been prepared using Excel software and then the final analysis has been done using Eviews software. Content analysis method was used to check the level of risk perception from the activity report of the board of directors, the management's interpretive report and the accompanying notes of the financial statements. In order to test the research hypotheses, the dynamic model approach has been used to estimate the models related to the hypotheses.
4- RESULTS & DISCUSSION
According to the findings of the research, the risk perception of annual reports has a significant effect on the stock price, and also the company's growth opportunity and profitability have a significant effect on the value relationship between the risk perception of annual reports and the stock price. Also, growth opportunity and profitability as moderators affect the relationship between risk perception and stock price. It can be claimed that Tehran Stock Exchange market is more influenced by economic variables. Therefore, it seems necessary to make policies in macro areas to reduce the feeling of economic risk.
5- CONCLUSIONS & SUGGESTIONS
It can be claimed that Tehran Stock Exchange market is more influenced by economic variables and financial and political variables do not have much effect on this market. Therefore, investors are advised to pay special attention to the effect of risk perception on market returns in financial analysis. In addition, in order to reduce the effect of risk feelings on the economy and especially on the stock market, it seems necessary to make policies in macro areas to reduce the feeling of risk.
Keywords: The Value Relevance of Risk Sentiment; Growth Opportunities; Profitability; Static and Dynamic Approach
ZAHRA shirzouraliabadi; sakineh eslamigiski
Abstract
Extended abstract
1- INTRODUCTION
One of the requirements of economic development is financial development or in other words, development of an efficient financial system to finance value-added activities. an efficient financial system is one of the most important determinants of achieving higher economic ...
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Extended abstract
1- INTRODUCTION
One of the requirements of economic development is financial development or in other words, development of an efficient financial system to finance value-added activities. an efficient financial system is one of the most important determinants of achieving higher economic growth and development. this issue in the iranian economy is due to the high share of the banking system in financing productive activities more than other countries, and therefore the importance of the banking industry with optimal performance is an inevitable necessity to achieve economic development.
2- THEORETICAL FRAMEWORK
the hypothesis of a silent life is expressed by hicks (1935), who shows in his study that firms with market power enjoy a quiet life, and therefore the managers of such firms make no effort to increase the efficiency of the firm. based on the hypothesis of hicks (1935), berger and henan (1989) first examine such a relationship in the banking industry, they show that managers of firms with market power are able to make no effort to improve cost efficiency, earn high profits.
At the heart of filter theory is the fact that when the employer is only aware of whether or not the person being hired has a college degree and no longer has any information about the other characteristics of that person, it is clear that the level of education. it turns out that a college degree will only have the role of distinguishing workers from one another and, in fact, acting as a filter and basis for determining wages, rather than improving the productivity of individuals.
3- METHODOLOGY
Considering that the data used by 17 banks for the period of 2018-2019 have been collected, so they have a composite structure and for this reason, stationary is examined first. their significance has been confirmed by the levin-lin chou and im, sons and shin tests. the next step in modeling is to investigate the possibility of heterogeneity between banks using the f-limer test. in addition, the results of the hausmann test show that the fixed effects model is preferable to random effects.
4- RESULTS & DISCUSSION
The results of estimation of the models according to different levels of education show that the effect of the adjusted lerner index on profitability is positive and significant. since the increase in the lerner index means an increase in the market power of banks, so the entry of banks and the increase in competition between them in the slang sense implies a decrease in the profitability of banks. on the other hand, the herfindahl-hirschman concentration index has a negative and significant effect on banks 'profitability, and this implies the diversification of banks' income sources in order to optimally distribute risk among different types of income. it should be noted that the ratio of credits to assets has had two-way effects on profitability.
5- CONCLUSIONS & SUGGESTIONS
The results of the estimates show that the diversification of banks' revenue sources, the increase in the share of the labor force with a bachelor's degree and the increase in the competitiveness index and, in fact, the market power have increased profitability. However, the increase in the size and share of the labor force with postgraduate and higher education in recent years has reduced the profitability of banks. Therefore, improvement the quality of education, increasing the relationship between the real and financial sectors by reducing the volume of rental activities in the economy and finally monitoring the performance of banks in terms of interest paid on deposits and interest on facilities are among the effective policies to increase banking industry profitability.
Mahdi Bastan; Sareh Akbarpour; Alimohammad Ahmadvand
Abstract
Iranian banking system was considered as one of the most important pillars of financing and this is due to the unsuitable growth of the country's capital market, so the banks must satisfy the important role in the Iran economy. Iranian Banks as economic lifeline of county needs to have an appropriate ...
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Iranian banking system was considered as one of the most important pillars of financing and this is due to the unsuitable growth of the country's capital market, so the banks must satisfy the important role in the Iran economy. Iranian Banks as economic lifeline of county needs to have an appropriate business model for doing this act and reaching sustainable profitability power for its shareholders. For many Iranian banks earn money by customer’s deposits attraction with definite and certain interest rate and giving this resource to their other customers as a facilities and loans with specific and deterministic higher interest rate, But by seeing the banks financial documents and analysis of their financial performance indicators, this is clear that their business procedure was failed to provide profitability and value creation for its shareholders. Really linear and one-way approach to profitability was created a business procedure for them which they have learned to earn money only by credit operation by deposit attraction and giving high-interest rate loans and facilities. This method has a specific spread that called hagh-Al-Vekaleh in Islamic banking system. The main problem was originated from this approach. Implementation of this approach has some consequences and feedback effects which will increase risk weighted assets and then decreasing capital adequacy ratio and other financial indicators. Finally it was converged to share-value reduction. This is opposite of primary objective and called” Banking Paradox” in this research. It was used a holistic and system approach based methodology for finding the main causes of problems and prepare effectiveness solution for managing it, by presenting a mathematical model which provide scenario-making and simulation of decision and policies as scenario on model. By running what-if analysis, learning form system will occur. The results show that there are not any way to allude form this banking paradox, only by changing some important parameters such as deposit interest rate, loans interest rate, regulatory reserve ration and etc. only by shifting to new business model for banking that emphasize on fee incomes and avoid from interest incomes, they can reach to sustainable profitability which create value for shareholders.
mohamad hasan fotros; mehdi ferdosi; saeed isazadeh; hamid sepehrdost
Abstract
Introduction
In most of countries, banks are one of the important parts of the financial system and have a considerable role as fiscal intermediates on getting economic growth and development.Generally, in every country, banks are the main basics of banking system especially in developing countries ...
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Introduction
In most of countries, banks are one of the important parts of the financial system and have a considerable role as fiscal intermediates on getting economic growth and development.Generally, in every country, banks are the main basics of banking system especially in developing countries where capital markets are not developed; hence, evaluating banks’ performance is important. Competition and risk are two important factors that have effect on performance. In Iran, along with entry of private banks, demands for different types of bank services has increased in that banks are looking for more proportion of market share and more profitability.
The goal of the present research is to analyze profitability, as a performance index, of banking system in Iran. This research can be distinguished from former studies in that it uses variables like diversification index of bank operations, capital market development, and manpower productivity.
Theoretical Framework
In general, there are three theories that explain the relationship between market structure and performance. These theories are SCP hypothesis, efficient-structure hypothesis, and quiet life hypothesis.
The SCP view represents a positive relationship between profitability and market concentration since banks can collude and get a more profit.
Efficient-structure theory was first coined by Demsetz in 1973. He said that bank profitability is extracted from efficiency. He maintained that more efficient banks have a more ability to increase its market shares and sizes that let them be more concentrated and gain higher profit.
The quiet-life hypothesis predicts a negative relation between concentration and profitability in which the firms with a higher market power tend to be inefficient so that its authorities and managers just charge the monopolistic profit and do not make an considerable effort.
Methodology
This research investigates profitability determinants of banking system in Iran during2003-2014.To this aim, 33 banks were selected. Two softwares, namely, Eviews.7 and Stata.14 were used. According to the Tan model (2015), the equation includes:
Where:
ROA: return on assets (profitability index)
Liq: liquidity index
Div: diversification index
Com: index of expenditure management
Pro: manpower productivity
Risk: risk index
HHI: concentration index (Herfindahl- Hirschman)
Cmd: development index of capital market
Results & Discussion
Before estimating the model, test of stationarity must be done. The results of four stationarity tests (LLC, IPS, ADF-Fischer and PP-Fischer) shows that all the variables are stationary.
Homogeneity test should be done in the next step.
Considering autocorrelation and heteroskedasticity problems in model, GLS method should be used for estimation.
The results show that all the coefficient are significant, statiscally. The probability of F-statistic represents that the regression is significant, generally. The R-squred statistic indicates 99 percent of dependent variable variations be explained by the regressors. Variables liquidity, diversification and risk have got a negative effect while the rest, have influenced profitability, positively. When the risk increases one unite, profitability would decreases 0.009 unit.With regard to concentration coefficient, it influences profitability,positively. In other words, SCP hypothesis be confirmed in banking system of Iran. The coefficient of HHI shows that if concentration in banking system increase one unit, profitability would increases 0.193.
Conclusion & Suggestions
This research investigated the determinants of banking profitability in Iran with respectto market structure and risk variables. The results gained using fixed effect and GLS procedures showed that both hypotheses were confirmed,and that concentration influenced profitability positively while risk had a negative effect on it.
Considering the results, the following suggestions are made:
1.Negative sign of the diversification index shows that it is better that banks focus on traditional activities (giving loans).
2.Concentration influences profitability positively; hence, banks should increase proportions from the market.
3.The sign of risk index shows that banks should pay attention to quality of loans or paying them back will be delayed.
4.The positive coefficient of productivity represents the importance of this factor in that banks should protect their staff through several ways like education, and issueslike peyments and salary so thatit can lead to productivity and finally profitability.
maryam davallou; fatemeh bastami; mohammad hossein mirzaali tehrani
Abstract
1-Introduction
This study is aimed to investigate the effect of working capital management on profitability during business cycles (boom and bust). If capital structure and long-term investment decisions are foundation of firm, proper management of working capital likes blood in the firms’ veins provides ...
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1-Introduction
This study is aimed to investigate the effect of working capital management on profitability during business cycles (boom and bust). If capital structure and long-term investment decisions are foundation of firm, proper management of working capital likes blood in the firms’ veins provides financial health and continuity possibility. One of the most important functions of every organization is the efficient management of working capital. Obviously, the uncertainty associated with macro-economic factors plays an important role in changing the product demand and firms financing. So that Kvrazyk & Levi (2003) believe firms determine the timing for debt issuing based on economic conditions. The main source of working capital financing, is retained earnings so it can be argued that business cycles affect the firm financing through its impact on economic growth, product demand and subsequently sales. For example, when sales of firm decline its profit is reduced and an important source of working capital financing is affected. In this situation, management will have to use external funds that are expensive. Regardless of the kind of industry in which the firm operates, the macroeconomic conditions affect all industries. For example, the recession declines the general level of demand, decreases sales and liquidity and imposes increasingly pressures on firms business. Lending limitations of financial institutions have led to cash becomes the scarce resource. Hence, the importance of working capital management is more than ever before. Therefore, this study investigated the effects of working capital management on profitability in different business cycles. In this study, for the first time, the effects of working capital and the profitability are examined taking into account the business cycles in both fixed and variable sample. Fixed sample includes companies that listed in the stock exchange continuously for the whole sample period. However variable sample includes companies that also have been listed during the research period (every year new companies listed in Tehran Stock Exchange). This study is aimed to investigate the relationship between business cycles, working capital management and profitability.
The study hypothesis includes:
Hypothesis 1: There is a relationship between profitability and cash conversion cycle (separated by boom and bust).
Hypothesis 2: There is a relationship between profitability and commitment payment period (separated by boom and bust).
Hypothesis 3: There is a relationship between profitability and average collection period (separated by boom and bust).
Hypothesis 4: There is a relationship between profitability and average inventory turnover period (separated by boom and bust).
2- Methodology
The effect of working capital management on the profitability during business cycles is examined by panel data regression using annual data. The diagnosis tests to determine the model (panel or pool regression) including F Limer and Hausman tests are fitted. It should be mentioned that profitability is calculated through two measures including return on assets (ROA) and gross operating profit. To evaluate the effect of business cycles on the relationship between working capital management and profitability, we must first identify business cycles. For this purpose the filter Hodrick –Perescot is used. The study consisted of both fixed and variable samples with 143 and 251 companies in Tehran Stock Exchange for 2001 to 2013 respectively.
3-Results & Discussion
The results of the two fixed and variable samples are shown in the below table.
Business cycles Variable Expected Sign ROA (dependent variable) GOI (dependent variable)
Example(251) Example(143) Example(251) Example(143)
Boom Ccc1 - Negative and insignificant positive and insignificant Negative and insignificant positive and insignificant
Ccc*D1 + positive and significant positive and insignificant positive and insignificant Negative and insignificant
Bust Ccc - positive and insignificant positive and insignificant positive and insignificant Negative and insignificant
Ccc*D2 - negative and significant Negative and insignificant Negative and insignificant positive and insignificant
Boom AP + negative and significant negative and significant negative and significant negative and significant
AP*D1 - negative and significant negative and significant Negative and insignificant Negative and insignificant
Bust AP + negative and significant negative and significant negative and significant Negative and insignificant
AP*D2 + positive and significant positive and significant positive and insignificant positive and insignificant
Boom AR - negative and significant negative and significant negative and significant negative and significant
AR*D1 + negative and significant Negative and insignificant negative and significant Negative and insignificant
Bust AR - negative and significant negative and significant negative and significant negative and significant
AR*D2 - positive and significant positive and insignificant positive and significant positive and insignificant
Boom INV - negative and significant Negative and insignificant Negative and insignificant Negative and insignificant
INV*D1 + positive and significant positive and insignificant positive and insignificant positive and insignificant
Bust INV - positive and insignificant Negative and insignificant Negative and insignificant Negative and insignificant
INV*D2 - negative and significant Negative and insignificant Negative and insignificant positive and insignificant
CCC: Cash Conversion Cycle, AP: Accounts Payable, AR: Accounts Receivable, INV: Inventory Conversion Period
As it can be seen there is a significant negative relationship between the profitability and collection period and this finding is supported by the expectations. In other words, this result has not been changed despite of balanced and unbalanced sample. There is negative relation between collection period and profitability during the boom that is reversed during the recession relative to the boom. The results indicated significant negative relationship between the profitability and commitment payment period. According to the results, as long as the economic downturn prevails, the commitment period has a positive relationship with profitability while the mentioned relationship is reversed in the boom period. Sensitivity analysis indicates that no change in the findings has been achieved with balanced sample.
4- Conclusions & Suggestions
The results indicate that as long as the return on assets (ROA) is used as a profitability measure, the relationship between profitability with the commitment payment period and the collection period is negative during the boom and there is a positive significant relationship between profitability and the cash conversion period and average inventory turnover. These relationships are reverse in recession. While if the gross operating earnings is used as second measure of profitability, it cannot find any significant relationship between profitability with the cash conversion period, average inventory turnover and commitment payment period neither during boom nor bust. There is negative (positive) significant relationship between gross operating profit and the average collection period in boom (recession). So, the results of this research are affected by the profitability measures. The results of the study are always true in variable and constant samples. Findings sensitivity analysis shows that the main results of this research are not influenced by variable sample and is established also for constant sample.
Abdorreza Asadi; Mohammadreza Abbaszadeh
Abstract
This paper investigates the effect of firms’ characteristics on leverage ratios
of affiliated and unaffiliated firms in Tehran Stock Exchange (TSE). In this
regard, financial data have been collected from 200 non-financial listed
companies over the five-year period. A regression model with dummy
variable ...
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This paper investigates the effect of firms’ characteristics on leverage ratios
of affiliated and unaffiliated firms in Tehran Stock Exchange (TSE). In this
regard, financial data have been collected from 200 non-financial listed
companies over the five-year period. A regression model with dummy
variable and t-statistic has been used to test the six hypotheses.
The results show a significant negative effect of profitability on leverage
ratios. The effect of growth opportunity on leverage ratios is significantly
positive and tangibility has a significant negative effect on short-term debt
and total debt ratios but for long-term the effect of debt ratio is positive. The
effect of firm size on leverage ratios is insignificant. Out findings also
indicate that the government ownership has a significant effect on the
relationship between firms’ characteristics and capital structure and the
pecking order theory is strongly supported as a pertinent theory to the capital
structure of Iranian companies.
Farzaneh Nassirzadeh; Amin Rostami
Abstract
Appraising the profitability of the companies is very important in the decisions of
financial information users. In this study, the relationship between modern liquidity
indexes and cash flow ratios with profitability (financial and market-based
measures) are examined.
This study includes 108 companies ...
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Appraising the profitability of the companies is very important in the decisions of
financial information users. In this study, the relationship between modern liquidity
indexes and cash flow ratios with profitability (financial and market-based
measures) are examined.
This study includes 108 companies of Tehran Stock Exchange during ٢٠٠١-٢٠٠٩.
The statistical method used to test the hypothesis is panel data approach; and three
models (based on the dependent variables) are estimated for each hypothesis. The
results show that modern liquidity indexes and cash flow ratios have correlation with
together but they have different information contents and they can not be substitutes
for each other and presenting both of ratios together will provide better results. In
addition the results from testing hypothesis show that modern liquidity indexes and
cash flow ratios (except the CFOTCL) have significant association with all
profitability measures (Financial and market-based measures) and can present a
good picture of profitability and firms return.
